Commodity markets are in a ‘super squeeze’ — and higher prices could be here to stay
SUIXI, CHINA – DECEMBER 30: An employee works on the production line of aluminum foil at a workshop of Anhui Limu New Material Technology Co., Ltd on December 30, 2023 in Suixi County, Huaibei City, Anhui Province of China. (Photo by Li Xin/VCG via Getty Images)
Vcg | Visual China Group | Getty Images
Global commodity markets are in a “super squeeze” amid supply disruptions and lack of investment — and it’s only going to get worse as geopolitical and climate risks exacerbate the situation, HSBC said.
“For some time now we have described global commodity markets as being in a ‘super-squeeze,'” its chief economist Paul Bloxham told CNBC.
A commodity “super squeeze” is denoted by higher prices driven by supply constraints more than a robust growth in demand, he explained.
“If it’s a supply constraint that’s driving high commodity prices, it’s a very different story for global growth,” said via Zoom. Higher prices as a result of a super squeeze are “not as positive.”
“We see the deeper ‘super-squeeze’ factors on the supply-side as still set to play a key role in keeping commodity prices elevated,” he said, outlining factors like political uncertainties, climate change and the lack of investments into the green energy transition.
The super squeeze could be deeper, or more prolonged if geopolitical, climate change or energy transition related supply disruptions are larger than expected.
Paul Bloxham
HSBC chief economist
Geopolitical risks include the ongoing Israel-Hamas conflict in Gaza and the Ukraine war, which have hampered global trade, as seen in shipping disruptions from the recent Houthi attacks in the Red Sea.
Another reason is climate change, which disrupts supply chains as well as commodities supply, especially in the agricultural space.
“The super squeeze could be deeper, or more prolonged if geopolitical, climate change or energy transition related supply disruptions are larger than expected,” he added.
Lack of investments
The world’s pursuit of a net-zero carbon future is fueling demand for energy transition metals such as copper and nickel, Bloxham pointed out.
However, there are insufficient investments allocated to procuring these critical minerals, leading to a sharper supply squeeze on energy transition metals — in particular copper, aluminum and nickel, he said.
As energy transition ramps up, markets could be looking at a shortage of a slew of metals like graphite, cobalt, copper, nickel and lithium in the next decade, the Energy Transitions Commission said in a report in July.
At the recent COP28 climate change conference, more than 60 countries backed a plan to triple global renewable energy capacity by 2030, in what is largely deemed as a step forward for energy transition and a further boost in demand for metals required for that transition.
“Large-scale mining projects can take 15-20 years, and the last decade has seen a lack of investment in exploration and production for key energy transition materials,” the report said.
Annual capital investments in these metals averaged $45 billion in the last two decades, and must rise to around $70 billion each year through to 2030 to ensure an ample stream of supply, according to the ETC report.
Commodities are notoriously volatile asset classes, with a long history that is prone to a short squeeze and the current landscape points to more of the same.
Brian Luke
S&P Dow Jones Indices
Without more investment in new capacities, supply will be constrained, HSBC’s Bloxham said, adding that “for any given amount of demand,” it should be expected that commodity prices will stay more elevated than in the past.
“That seems to be playing out across many of the commodities at the moment.”
Technology could also be a gamechanger if a development came along and made it much easier to extract the metals used in the battery space, Bloxham added.
Iron ore site in Australia.
Ian Waldie | Bloomberg via Getty Images
He did not say how long it will take global commodity markets to move out of the squeeze, but one way out of it — which would also push commodity prices lower — is a “bigger and deeper [economic] downturn globally,” he said.
“Commodities are notoriously volatile asset classes, with a long history that is prone to a short squeeze and the current landscape points to more of the same,” said Brian Luke, senior director and head of commodities at S&P Dow Jones Indices. He highlighted that extreme weather events and geopolitics have also impacted the agricultural and energy commodity baskets.
Metals most impacted
Analysts say metals will likely see the most upside.
Bloxham noted that aside from clean energy metals, iron ore was also on his list due to falling inventory and a lack of investments into expanding capacity.
Iron ore has seen a price jump of over 24% in the last year, according to data from FactSet. The benchmark 62%-grade iron ore last traded at $135.48 per ton.
“The reason why [iron ore] has a sudden squeeze-up is because inventory has been very low,” said Bank of America Securities’ head of Asia -Pacific basic materials, Matty Zhao.
She noted that in spite of China’s property crisis, steel production has continued, fueling demand for iron ore and coking coal, which are integral to steelmaking.
China, which makes around 55% of the world’s steel, produced 874.7 million tons of steel in the first 10 months of 2023 — up 1.4% across the same period in 2022.
What squeeze?
While risks remain, one analyst is of the view that commodity markets are still “adequately supplied” for the most part.
“The commodity markets are currently focused on slumping demand due to the sluggish global economy. As such, there’s not too much concern about supplies,” said Arlan Suderman, chief commodities economist at financial services firm StoneX.
Oil, for one, saw an increase in global oil inventories in 2023.
Some are still hoping that a rebound in Chinese demand will help.
“A resurgence from Asia will go a long way in determining if commodities will have a breakout year,” said S&P’s Luke, adding that 2023 saw a year of unfulfilled demand from China which weighed heavily on commodity markets.
Tesla is starting to experience some consequences for misleading Full Self Driving customers – at least that’s the finding of one arbitration ruling that has Tesla refunding one customer $10,000 plus legal fees for failing to deliver on their promises. Find out more on today’s legally challenging episode of Quick Charge!
An arbitration “court” found that Tesla misled customers with its Full Self Driving product, and has now been forced to refund at least one person’s $10,000 payment (plus legal fees) for the not-quite autonomous driving software. France, too, is piling on claims of deceptive business practices – but there’s some good news for FSD fans! If you’re still willing to pay for it, Tesla will thrown in 0% financing on a brand new Cybertruck.
Check out the relevant links, below, to learn more.
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Toyota’s new electric SUV is a surprise hit in China. Starting at just $15,000, the Toyota bZ3X is already the top-selling joint venture brand EV.
The $15,000 Toyota bZ3X is the top-selling foreign EV
After launching the bZ3X in March, Toyota’s joint venture, GAC Toyota, claimed that orders were “so popular that the server crashed.” It apparently secured over 10,000 orders in the first hour.
In its second month on the market, the bZ3X was the top-selling foreign-owned vehicle in China, beating out the Volkswagen ID.3 and ID.4 Crozz, Nissan N7, and BMW i3.
According to the latest update, the electric SUV retained the title once again in June. Peng Baolin, General Manager of Sales at GAC-Toyota, revealed on social media that the “delivery volume of Bozhi 3X in June reached 6,030 units.”
GAC Toyota announced on Weibo that cumulative deliveries have now exceeded 20,000 units, setting a new record for the fastest joint venture electric SUV sales to achieve the feat.
The company also claimed that the bZ3X “has the highest sales of new energy vehicles” among joint venture brands right now.
The bZ3X is Toyota’s “first 100,000 yuan-level pure electric SUV.” It’s available in seven different trims, starting at 109,800 yuan, or about $15,000.
Two variants have an added LiDAR, making Toyota the first joint venture brand to offer it in China. The smart driving version starts at 149,800 yuan ($20,500). For 159,800 yuan ($22,000), you can upgrade to the range-topping “610 Max” trim.
Powered by a 67.92 kWh battery, the long-range model is rated with a CLTC range of up to 610 km (379 miles). The base “Air” trim features a 50.03 kWh battery, good for a 430 km (267 miles) range.
The bZ3X measures 4,645 mm in length, 1,885 mm in width, and 1,625 mm in height, or about the size of BYD’s popular Yuan Plus (sold overseas as the Atto 3).
Inside is a significant upgrade from most Toyota models we are used to seeing. It features a tech-focused interior with a 12.3″ infotainment screen and an 8.8″ driver display.
Toyota markets it as an affordable family SUV with “a mobile space that is as comfortable as home.” With all the seats folded, the interior offers nearly 10 feet (3 meters) of space.
It’s also powered by Momenta’s 5.0 smart driving system, offering advanced smart driving features such as Level 2 assisted driving, remote parking, and more.
Electrek’s Take
Although it may not seem like much with Chinese EV makers like Xiaomi securing nearly 300,000 orders for the YU7 SUV in an hour, the bZ3X is selling surprisingly well for a foreign brand vehicle.
Global automakers are struggling to keep pace in China with an influx of new low-cost domestic EVs and an intensifying price war. However, Japanese automakers, including Toyota, have been some of the hardest hit.
During GAC Toyota’s Tech Day event last month, the company announced partnerships with China’s leading tech companies, including Huawei, Xiaomi, and Momenta, as it seeks to regain market share.
Ahead of the event, the company posted on Weibo that “god-level allies are coming to help,” adding “car industry bigwigs are coming.
Through May, Toyota’s sales in China are up 7.7% from the same period last year, with 530,000 vehicles sold. Will Toyota continue gaining traction in the world’s largest EV market? With the bZ5 now rolling out and several new models on the way, Toyota is looking for a comeback.
Source: Sohu, GAC-Toyota
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